Question

I need your answer for this question.Br//Ha

State whether the following statements are true or false. Shortly explain your answer in 1-2 sentences.

a) Labor Demand is more elastic in the long run than in the short run.

b) In a simple model of labor demand with a competitive firm that uses capital and labor in production, the effect of a reduction in wages on the amount of capital used in production is ambiguous in the long run.

c) In a perfectly competitive model, the effects of introducing a payroll tax on equilibrium employment and wage outcomes depend on whether the government decides to tax the firm or the worker.

d) In a monopsony with a non-discriminating monopsonist the labor supply curve equals the marginal cost of labor.

Answer 1

a) It is true that the long run demand curve is more elastic than the short run demand curve as it is difficult to increase output in the short run. The responsiveness is not attained in the short run as it is in the long run.

b) This statement is false as reduction in wages lowers the firms production costs and encourages it to increase its output. Reduction in wages raises the demand for capital and labour as output increases and more labour is employed.

c) In a perfectly competitive market, the effect of introducing a payroll tax has the same effect on equilibrium employment and wage rates when the firm or the worker pays tax. Both of them reduce the take home pay of the worker, increase the cost of an hour of labor for the employer and reduces employment.

d) As the monopsonist is the only employer in the industry because of which the labor supply curve is not equal to the marginal cost of labour as it has to pay all the existing workers the same rate as the new workers, the marginal cost of labour is higher.